adminSOUTH Africa’s economic growth slowed for the third year in a row last year, showing that structural changes are required to the labour market and regulatory environment reforms are needed to boost growth.Growth moderated to 1.9 percent last year following a 2.5 percent increase in 2012 and 3.6 percent in 2011, according to figures Statistics South Africa released on Tuesday.
South Africa’s 30-year growth and development strategy, the National Development Plan, envisages growth rates of more than 5 percent per year. The plan’s authors estimate that this is what is required to create jobs and address poverty.
Low growth slows job creation and weakens tax generation. The cost of borrowing increased last month when the Reserve Bank surprised the market with a 50 basis point interest rate hike. Analysts expect further rate increases in the short term.
Tightening monetary policy comes at a time when the Treasury is trying to rebuild fiscal buffers after it increased government spending during the recession to boost economic activity.
Standard Chartered’s head of Africa research, Razia Khan, said interest rate hikes would make it more difficult for the Treasury to achieve fiscal consolidation, which was aimed at reducing the budget deficit and slowing the accumulation of debt.
With both monetary and fiscal policies under pressure, it was up to policy makers to implement reforms. “Don’t make it difficult for companies to obtain credit to grow their businesses,” Ms Khan said. “Another crucial element is labour market reform.”
Employers have repeatedly raised concerns about labour laws becoming more restrictive, and hurting growth. The Labour Relations Amendment Bill passed last year is an example of regulation moving against what is recommended to lift growth. The bill allows for such things as an extension of the consultation period for proposed retrenchments.
Renaissance Capital economist Thabi Leoka said it was possible for South Africa to achieve higher growth rates. “We can grow faster . . . (but) we need to look at labour relations in the country and the impact that labour disruptions are having on the economy .”
The economy grew a higher than expected, seasonally adjusted and annualised 3.8 percent in the fourth quarter of last year. This was largely as a result of a rebound in manufacturing activity after labour strikes in the vehicle production sector experienced in the third quarter were not repeated.
Other sectors, except electricity and gas, contributed positively to this growth. Stats SA deputy director-general for economic statistics Joe de Beer said the low base created by the weak economic growth of 0.7 percent in the third quarter, and a resumption in vehicle manufacturing in particular, had lifted growth in the fourth quarter.
The better than expected economic growth figures supported the rand, which advanced to about R10.72/USD on Tuesday from a close of R10.79/USD on Monday.
Economists were not optimistic about these quarterly economic growth rates being sustained given continued strikes and a slow pickup in global demand.
A leading indicator of economic activity the Reserve Bank released on Tuesday supported views that economic growth would be sluggish over the coming six months. The indicator remained unchanged at 100.2 points month on month in December, but dropped 0.8 percent year on year.
“The pace of growth set in the fourth quarter is not likely to be repeated in the first quarter of this year given the protracted strikes in the mining sector and the slowdown in China,” said Nedbank senior economist Nicky Weimar. –Businessday
Online Reporter